Political Science

That is the topic of my latest Bloomberg column, here is one excerpt:

One of the biggest objections to recent globalization is that it extended international trade at a destabilizing pace. Whether or not you agree with this negative assessment, from 1950 to 2008, international trade grew about three times faster than global gross domestic product. Since then, cross-country trade has grown much more slowly, at about the pace of global GDP growth or perhaps slower. For better or worse, that is a significant deceleration.

Elites didn’t just decide trade growth had to be slowed down. Rather, the initial rapid growth had some self-reversing properties built in. For instance, China’s growth and exports slowed down as the economy matured and wages rose, trade-intensive Europe became a smaller percentage of the global economy, and protectionist nontariff pressures have recently been rising.

The wisdom behind globalization isn’t a belief that it will be steered by very wise elites. Rather, most economic processes show elements of convergence, stability and mean-reversion, without anyone planning them.

The conclusion:

I’m not saying that all is well, as I see significant possibilities for instability in the current political configuration. But the elites have in fact been working at their job, and now it is up to voters to catch up in their understanding.

Do read the whole thing.

The excellent Douglas Irwin has a new NBER paper on that question, here is one excerpt:

Hayek (1937, 64) leveled three main criticisms against flexible exchange rates, all of which were frequently repeated during this period. First, flexible exchange rates would give rise to speculative capital flows that would be destabilizing; specifically, capital movements would reinforce exchange rate shifts arising from payments imbalances, thereby magnifying volatility and “turn what originally might have been a minor inconvenience into a major disturbance.” Second, flexible exchange rates would lead to competitive depreciations, the flexible rate counterpart to competitive devaluations, which would encourage a return to mercantilism and an increase in trade barriers. “Without stability of exchange rates it is vain to hope for any reduction of trade barriers,” he concluded (1937, 74n). Third, exchange rate instability would create risks that would discourage international trade and deter long-term foreign investment.

Frank Graham and Charles Whittlesey, both at Princeton, were among the few American economists who favored complete floating rates and monetary independence.  Now what might account for such a difference in opinion?:

1. They hadn’t yet learned that fixed rate systems just weren’t politically stable, but we now know this with the benefit of hindsight, including the failures of Bretton Woods and a new understanding that competitive devaluations don’t have to be so disastrous.

2. They were good economists, and we are plain, simple idiots.

3. Heavy-duty manufacturing exports, with only a few major exporting countries, and a lot of FDI potential in the periphery, plus plenty of highly illiquid currencies, actually militated in favor of fixed rather than floating rates at that time.

4. During that period people thought high level of international cooperation were necessary to solve problems, and this stemmed in part from the failures of World War I and later World War II.  If you favor “international cooperation” as a general value, you might then also tend to mood affiliate with the notion of fixed exchange rates.

I believe that factors #1-4 all might play a role in the complete explanation here.  Am I overlooking something?

Hunt Allcott and Matthew Gentzkow have a new paper (pdf) on this topic.  I haven’t had a chance to look at it, but here is the bottom line:

… we find: (i) social media was an important but not dominant source of news in the run-up to the election, with 14 percent of Americans calling social media their “most important” source of election news; (ii) of the known false news stories that appeared in the three months before the election, those favoring Trump were shared a total of 30 million times on Facebook, while those favoring Clinton were shared eight million times; (iii) the average American saw and remembered 0.92 pro-Trump fake news stories and 0.23 pro-Clinton fake news stories, with just over half of those who recalled seeing fake news stories believing them; (iv) for fake news to have changed the outcome of the election, a single fake article would need to have had the same persuasive effect as 36 television campaign ads.

Self-recommending…

Here is one good bit of many:

I think that there are two big dangers from a Trump administration: one is a crisis, either the collapse of NATO or starting a nuclear war with another state, and the other is that he does a “grand bargain”, particularly because things probably won’t go very well for him at home and he will need a foreign policy success: he has an early summit with Putin and comes out with some kind of showy deal, which is very bad for the security of frontline states. So yes, I am worried about that. Putin can offer Trump cooperation on terrorism; he can offer cooperation on Syria. I think both of those are essentially nugatory, and if there was any real willingness to cooperate, they would be cooperating already, so you don’t need a grand bargain to have cooperation on that. But he can offer it; he can also offer some kind of deal on the front line: for example, taking missiles out of Kaliningrad in exchange for America cancelling its missile defence programmes, and possibly also going even further: Russia pulling troops back from its western military district and America pulling its forces out of the frontline. I think that would be absolutely catastrophic. So there are different levels of importance in this grand bargain, any of them bad.

Here is the whole interview.

I wrote it for a Spanish-language periodical, here is the end bit:

There is plenty of talk about Obama being half-black but perhaps the more important fact is that Obama is from Hawaii. Many Hawaiians barely think of themselves as North Americans and they live thousands of miles from the continent. The Hawaiian background is part of where Obama’s cosmopolitanism – which is strong and sincere – comes from.

My description may sound like a very favorable portrait of Obama on economics but he will likely encounter serious problems if he wins the election.  The important American Presidents are those like Reagan who “know a few big things” and push them unceasingly, without much regard for the pragmatic or even the reasonable.  Obama is not used to connecting with mainstream America and if he wins it is because the country is fed up with Republicans, not because the voters have absolute confidence in him.  Congress will test him.  The chance that he makes big mistakes will be small, and that’s all for the better.  But the best prediction is that he will be ineffective in tackling most of America’s biggest problems.

Here is the whole thing, not entirely correct by any means, but not so far off the mark either.

That is the topic of my latest Bloomberg column, here is one excerpt:

At a further margin, government’s contribution to the health care, retirement and education sectors will also seem inadequate, because at such high prices a government really cannot pay for everything. A heated political debate will ensue. Progressives will argue that significant human needs are being neglected, and they will be able to point to numerous supportive anecdotes. Conservatives will argue that the fiscal path behind such policies is unsustainable, and they will be right, too. Because it will feel to voters that government isn’t doing a good job in these high-cost areas, the conservative view will get further traction. Libertarians may promote radical spending cuts, hoping for much higher productivity growth, but the government interventions are built in so thickly that that strategy could take a long time to pay off, and in the meantime it won’t look like a political winner.

All of the various sides may be correct in their major claims, but none will have a workable solution. This actually isn’t so far from where the health-care debate stands now, and where the retirement and nursing home debate is headed as America ages.

Do read the whole thing.

As a simple rule, reject any argument that asserts “my opponent X is leaving a health care need unfilled” because indeed that is always the case.  Within Obamacare, for instance, do you favor expanding the scope of the mandate at every margin?  Probably not.  The trick is to have a good argument for why yours is the Goldilocks position, not to note that those who subsidize health care less are…doing less.  There is always someone who wants to subsidize more than you do, so fight Parfit’s “war on two fronts.”

By Vlad Tarko, order your copy here.  Here are two excerpts:

She went to Beverly Hills High School, across the street from her house.  “I’m very grateful for that opportunity,” she later recalled, “because 90 percent of the kids who went to Beverly Hills High School went on to college.  I don’t think I would have gone to college if not for that environment.”  She recalled that her “mother didn’t want me to go to college — [she] saw no reason whatsoever to do that…”

“Basically I put my husband through law school,” she recalled…Her own [first] husband objected to her getting a PhD, which led her to divorce him.

This book captures the essence of Elinor Ostrom.

Mrs May later said the UK would be prepared to leave the EU without an exit agreement, saying: “No deal for Britain is better than a bad deal for Britain.” The government could then strike trade deals with other countries and use “competitive tax rates” to boost the economy, she said.

The prime minister confirmed that both [sic] houses of parliament would have a vote on the final Brexit deal, expected in early 2019. She did not clarify what would happen if either house were to reject the deal.

Here is the FT article, the pound is up again.  And while I do not think the House of Lords would block a democratically-determined Brexit, might this not lead to the end of the House of Lords as we know it?  If they don’t stand up for anything, why bother with them?

The Economist has a useful explainer on why the “WTO option” for Brexit will prove tricky; I would like to see more serious analysis of this issue.  Here is the latest on Northern Ireland, the chance of a hard border with the Republic of Ireland has gone up.

In any case, I suspect this was always the equilibrium.

It’s long been known that the Chinese government hires people to support the government with fabricated posts on social media. In China these people are known as the “50c party”, so called because the posters were rumored to be paid 50 cents (5 jiao or about $.08) to write the posts. The precise nature and extent of the 50c party has heretofore been unknown. But in an amazing new paper, Gary King, Jennifer Pan and Margaret Roberts (KPR) uncover a lot of new information using statistical sleuthing and some unusual and controversial real world sleuthing.

KPR’s data-lever is an archive of leaked emails from the Propaganda Office of Zhanggong. The archive included many 50c posters who were sending links and screenshots of their posts to the central office as evidence of their good work. Using these posts, KPR are able to trace the posters though many social media accounts and discover who the posters are and what they are posting about. Both pieces of information reveal surprises.

First, the posters are government workers paid on salary not, as the 50c phrase suggests, piece-rate workers. Second, and more importantly, it has long been assumed that propaganda posts would support the government with praise or criticize critics of the government. Not so. In fact, propaganda posts actively steer away from controversial issues. Instead, the effort appears to be to distract (especially to distract the people from organizing collective action; thus distraction campaigns peak around times and places where collective action like marches and protests might become focal). KPR write:

Distraction is a clever and useful strategy in information control in that an argument in almost any human discussion is rarely an effective way to put an end to an opposing argument. Letting an argument die, or changing the subject, usually works much better than picking an argument and getting someone’s back up…

Debate is about appealing to an individual’s reason; debate is thus implicitly individualistic, respectful of rights and epistemically egalitarian. (As I argued earlier, respect for the truth is tied to individualism because any person may have truth and reason on their side.) Authoritarians don’t care about these things and so they lie and distract with impunity and without shame. In this case, the distraction is done subtly.

From the initial archive, KPR are able to create a statistical picture of 50c posters. In one of the most remarkable parts of the paper they use this picture to identify many other plausible 50c posters not in the original archive. Then KPR test their identification with a kind of academic catfish–essentially they trick the 50c posters into self-identifying. It’s at this point that KPR’s paper begins to read more like the description of a CIA op than a standard academic paper.

We began by creating a large number of pseudonymous social media accounts. This required many research assistants and volunteers, having a presence on the ground in China at many locations across the country, among many other logistically challenging complications. We conducted the survey via “direct messaging” on Sina Weibo, which enables private communication from one account to another. With IRB permission, we do not identify ourselves as researchers and instead pose, like our respondents, as ordinary citizens.

Using their own fake accounts, KPR directly message people they think are 50c posters with a message along the lines of:

I saw your comment, it’s really inspiring, I want to ask, do you have any public opinion guidance management, or online commenting experience?

The question is phrased in a positive way and it uses the official term “public opinion guidance” rather than the 50c term which has a negative connotation. Amazingly, 59% of the people KPR identify as 50c posters answer yes, essentially outing themselves.

KPRNow, one might wonder whether such a question has evidentiary value but KPR do a clever validation exercise. First, they ask the same question to people from the original leaked archive, people whom KPR know are actual 50c posters. Second, they ask the same question of people who are very unlikely to be 50c posters. The result is that 57% of the known 50c posters answer the question, yes. Almost exactly the same percentage (59%) as in the predicted 50c sample. At the same time, only 19% of the posters known not to be 50c answer yes (that doesn’t mean that 19% are 50c but rather that 19% is a measure of the noise created by asking the question in a subtle way). What’s important is that the large 40 point difference gives good statistical grounds for validating the predicted 50c sample.

Using this kind of analysis and careful, documented, extrapolation, KPR:

…find a massive government effort, where every year the 50c party writes approximately 448 million social media posts nationwide. About 52.7% of these posts appear on government sites. The remaining 212 million posts are inserted into the stream of approximately 80 billion total posts on commercial social media sites, all in real time. If these estimates are correct, a large proportion of government web site comments, and about one of every 178 social media posts on commercial sites, are fabricated by the government. The posts are not randomly distributed but, as we show in Figure 2, are highly focused and directed, all with specific intent and content.

As if this weren’t enough, an early version of KPR’s paper leaked and when the Chinese government responded, KPR became part of the story that they had meant to observe. The government’s response is now in turn used in this paper to verify some of KPR’s arguments. Very meta.

It took courage to write this paper. I do not think any of the authors will be traveling to China any time soon.

President-elect Donald Trump criticized a cornerstone of House Republicans’ corporate-tax plan, which they had pitched as an alternative to his proposed import tariffs, creating another point of contention between the incoming president and congressional allies.

The measure, known as border adjustment, would tax imports and exempt exports as part of a broader plan to encourage companies to locate jobs and production in the U.S. But Mr. Trump, in his first comments on the subject, called it “too complicated.”

“Anytime I hear border adjustment, I don’t love it,” Mr. Trump said in an interview with The Wall Street Journal on Friday. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”

Here is the WSJ piece.  I am not suggesting, however, that I favor his preferred alternative or for that matter most of his other policy ideas.  By the way, here is Trump on heroes.  A willingness to think things through from scratch is in some ways admirable, but dangerous in matters of foreign policy and nuclear weapons, where predictability is at a premium.

And see some related remarks from Conor Sen.

The Seasteading Institute has signed an MOU with French Polynesia.

[French Polynesian and the Seasteading Institute will].. pool their efforts for the implementation of a pilot project
for floating islands in French Polynesia. The development of this project involves various studies addressing the technical and legal feasibility of the project in French Polynesia as well as the preparation of the special governing framework allowing the creation of the Floating Island Project located in an innovative special economic zone…..

Seasteading1

The Floating Island Project will develop innovative and sustainable floating platforms. It will promote the development of new technologies in the terrestrial Anchor Zone and in the Floating Islands Zone. The Floating Island Project will respect the environmental standards defined by French Polynesia. It will use renewable energies. It will welcome the development of innovative technologies for the protection of the environment. It will not be interested in any land or ocean mineral resource. The platforms aim to attract direct and indirect investments in French Polynesia and host numerous businesses and research projects. The project will allow international experts to collaborate in French Polynesia to develop platforms capable of minimizing the effects of rising sea levels. It will have to have a favorable and significant impact on the local economy with the establishment of a special economic zone that will facilitate the creation and management of companies.

The focus of the project is on building new communities to deal with rising sea levels but will also include a special governing framework to allow for greater experimentation with the rules of social organization. The technology, of course, my also scale.

Peter Thiel was an early backer of the Seasteading idea, although he is no longer involved. More than one of his unlikely bets has paid off recently.

Here are previous MR posts on Seasteading from both Tyler and myself.

In my latest Bloomberg column I consider William F. Buckley’s old conundrum:

William F. Buckley famously said he would rather be ruled by the first 2,000 people listed in the Boston telephone directory than by the faculty of Harvard University.

Here is part of my take:

For better or worse, direct rule by Buckley’s 2,000 American citizens probably would mean a slower pace of immigration, less emphasis on free trade, more law and order politics, and a blunter form of nationalism in foreign policy.

Those don’t match my policy preferences (I am more of a globalist, and also a professional academic), but I fear what the Harvard faculty could bring. I can imagine an America closer to Bernie Sanders’s vision, with single-payer health insurance, levels of taxation exceeding 50 percent of GDP, levels of immigration unsustainable with a large welfare state, too many aggressive attempts to legislate equal treatment for various groups, excessive fondness for a universal basic income, and too many humanitarian interventions abroad.

Don’t forget:

It’s a good rule of governance that policy cannot race too far ahead of the citizenry, and I don’t view faculty as a class of people well-suited for that kind of humility.

But for the Fed and the EPA, among other areas, I very much want Harvard.  My conclusion is this:

The real issue here isn’t intellectuals versus populism writ large. There is a time and place for populist sentiment, but an excess can be counterproductive on its own terms. As expertise is pushed out the door, the citizenry itself gets a bad name, precisely when we most need it to step up to the plate and demand some excellence.

Do read the whole thing.

I should note that on this topic I have been very much influenced by my colleague David Levy and also his work with Sandra J. Peart, see for instance their newly arrived book Escape from Democracy: The Role of Experts and the Public in Economic Policy.

A few years ago I wrote this about Bolivia:

It is much debated in Bolivia whether corruption is going up or down.  I believe it is going up, but partially for good reasons.  For instance the construction sector is doing well, and construction tends to be corrupt in many countries, for reasons intrinsic to the activity itself (e.g., lots of big contracts, easy to claim invisible expenses, etc.).  That means higher corruption but also a better corruption than the penny ante bribes of a shrinking economy.

I still think that is correct, and at the time it didn’t meet up with mass moral opprobrium, even though with some very very small chance I may have condemned the citizenry of Bolivia to corrupt, exploitative rule for ever and ever.  I should add that such points are standard fare in the literature, see for instance the book on corruption by Susan Rose-Ackerman.

Now, these days, with more American status relationships on the line, everyone is up in arms because Peter Thiel had the following exchange with Maureen Dowd:

When I remark that President Obama had eight years without any ethical shadiness, Mr. Thiel flips it, noting: “But there’s a point where no corruption can be a bad thing. It can mean that things are too boring.”

As I interpret Peter, he is not saying it would have been good to have an exogenous increase in the corruption of Obama the individual.  Rather, had some other conditions been different/better, the overall level of corruption in government would have been higher and that combination might very well have been a net plus.  If you would like a “left wing example,” had the fiscal stimulus been twice as large, corruption in government probably would have been higher too (pointing out “the stimulus wasn’t very corrupt” is missing the point and in fact is a sign that you are a rampant mood affiliator, determined to restore the mood you feel is just, rather than tracing the analytic point at hand).  In other words, Peter’s point is entirely defensible and probably correct.  He’s not saying that “corruption is good.”

Now, to be sure, there is another dimension here.  The incoming Trump administration is showing too many signs of being corrupt, and many people are condemning it on these grounds.  Peter’s remark does not fit into that narrative and Peter has been a significant Trump supporter.  But let’s think about this a little more.   First, is there a role for some outsiders who eschew the dominant moral choruses of approbation and condemnation, in favor of making other, different points?  I certainly hope so, because often I try to be one of them (though unlike Peter I have not supported Trump).  Second, Peter is not an outsider in this process, rather he has taken on an important position on the Trump transition team.  Given that reality, you can’t expect him to produce a quotation here condemning Trump.  So he instead makes some other (valid) outsider-like point about corruption.  Now, you might object to Peter’s role on the transition team, but that is old news at this point.  You shouldn’t be holding any extra grudge against him for his corruption answer.  And above all, keep in mind these are reporter-chosen excerpts from a four-hour dinner/interview, and so we don’t know the surrounding context and qualifications and possibly accompanying off the record statements.

People, you need to pick your targets.  Get upset about the things worth getting upset about, such as the absence of a sustained foreign policy plan to head off imminent volatility in global relations.

How many of you have been expecting that heading?  Of course it involves cows:

A Dutch woman has seen her request for Swiss citizenship refused for the second time by local residents who object to her media campaigning against cowbells and other Swiss traditions.

Nancy Holten, 42, was born in the Netherlands but grew up in Switzerland from the age of eight, speaks fluent Swiss German and has children with Swiss citizenship.

A vegan and supporter of animal rights, she gained a reputation in her community of Gipf-Oberfrick, in the canton of Aargau, after campaigning against cowbells, claiming they were damaging to cows’ health.

She has also objected to hunting and piglet racing, and complained about the noise of church bells in the village, campaigns that have seen her regularly interviewed in the Swiss press over the past few years.

Last November, Holten had her citizenship application turned down for the second time by the residents’ committee.  That’s despite her meeting all legal requirements and the municipal and cantonal authorities having no formal objection.

In Switzerland local residents often have a say in citizenship applications, which are decided primarily by the cantons and communes where the applicant lives, rather than federal authorities.

In Holten’s case it seems her campaigning has not won her many friends in the village, with the president of the local branch of the Swiss People’s Party, Tanja Suter, telling the media that Holten has a “big mouth”.

The commune did not want to give Holten the “present” of Swiss citizenship “if she annoys us and doesn’t respect our traditions”, said Suter.

Is this not what politics should be about, namely the relationship between man and nature?  Here is Gipf-Oberfrick, the community in question:

swiss

Here is the full story, with a variety of interesting points and examples at the link, via Ted Gioia and Dan Wang.

Several loyal MR readers requested I cover this topic.  My views are pretty simple, namely that I am a fan of the movement.  Police in this country kill, beat, arrest, fine, and confiscate the property of black people at unfair and disproportionate rates.  The movement directs people’s attention to this fact, and the now-common use of cell phone video and recordings have driven the point home.

I don’t doubt that many policemen perceive they are at higher risk when dealing with young black males, and that is part of why they may act more brutally or be quicker to shoot or otherwise misbehave.  I would respond that statistical discrimination, even if it is rational, does not excuse what are often crimes against innocent people.  For instance, a man is far more likely to kill you than is a woman, but that fact does not excuse the shooting of an innocent man.

I also don’t see that citing “Black Lives Matter” has to denigrate the value of the life of anyone else.  Rather, the use of the slogan reflects the fact that many white people have been unaware of the extra burdens that many innocent black people must carry due to their treatment at the hands of the police.  The slogan is a way of informing others of this reality.

“Black Lives Matter” is a large movement, if that is the proper word for it, and you can find many objectionable statements, alliances, and political views within it.  I don’t mean to endorse those, but at its essence I see this as a libertarian idea to be admired and promoted.